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New Business Cash Flow

 
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Old 07-26-2018, 06:13 PM   #1
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New Business Cash Flow


This is probably best asked in the "business" forum, but I wanted to ask it here, since my business is building decks. If it needs to be moved, please do so.

If you guys want the short question and don't want to read - What are you guys doing for payment terms/draws for decks? For those who want more details...please keep reading.

I am trying to learn from my mistakes as I go, and catch and correct them BEFORE they do more damage than they already are.

Because of how certain things went down, I prematurely started my company without having an appropriate amount of startup capital. I had plans with another builder, and I was going to sub for him, that didn't work out, so I went out looking for my own work. Thought my capital would be fine with the "new business" type work I thought I would be getting (smaller jobs).

Well, another wrench was thrown in the mix my average jobs have been roughly $25k. Not complaining, but I never expected these types of jobs this early, and my working capital isn't cutting it. I have been getting 25% at signing as a deposit (No deposit laws here), another 25% on the first day, and the remaining 50% at completion. Depending on the materials used, the materials alone are occasionally a little more than those first 2 payments.

I was always working behind the money, but I was surviving. That was until I hit my first big road block with a stain on some decking that wouldn't come off (resolved now, thank you Mike). The homeowner withheld his final payment, because he was worried we wouldn't return to take care of his decking. Obviously we wouldn't do that, but it's understandable. We went to the next job that the materials were more than the 50% I had received, and I had to write payroll 2 days later. Needless to say, the money went fast.

ANYWAY, with an issue like this, it made me realize I was a damn fool for thinking the capital I had was sufficient! What are your payment draws on decks to stay ahead of the money? I know some of you have different laws in place, but looking for an average.

-Do you guys do different ways/amounts for different prices
-What percentage and when do you require draws
-Do you just work "in the hole" until you finish, or do get enough in the beginning to keep you from loosing money through your project

I am considering 1/3rd at signing, 1/3rd when permits have been approved (so I get 2/3rds of the job before I order lumber to pay for that cost), and the last 1/3rd at completion. However, I am also considering a few more options. For example 25% up front, 50% on first day, 15% once decking begins, and only have 10% still remaining at completion. That way I would have ALL expenses, costs, and overhead for the job already in hand before the job was completed.

How do you guys do it?
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Old 07-26-2018, 06:34 PM   #2
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Re: New Business Cash Flow


Working capital is king, too many small draws look less professional. Thirds might work well, then you're never in the hole.

My contracts are bigger, and my final payment is generally just 2-5%, after it's done and usable but before punch list. I'm very clear about things might need touch up, be damaged, or even be delayed due to stock issues, shipping problems, etc.

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Old 07-26-2018, 06:40 PM   #3
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Re: New Business Cash Flow


I went ahead and moved the thread to Business, because the principles apply no matter what your schtick is.

Ideally you'd set your draws up so you're never out of pocket, but that's often not practical in the real world. I think Golden View summed it up pretty nicely.
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Old 07-26-2018, 06:55 PM   #4
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Re: New Business Cash Flow


I didn't read the whole thing, because after seeing your draw schedule (i.e. - "I have been getting 25% at signing as a deposit (No deposit laws here), another 25% on the first day, and the remaining 50% at completion.") it's clear that's it out of balance with what your business needs right now since it seems you have little to no Capital Reserves or Emergency Fund (ideally, 3-6 months of each)... without a correction, you'll quickly find yourself in a rob Peter to pay Paul cycle, which cause mayhem...

In your case, first, you might want to consider raising your rates, so you can develop Capital Reserves and Emergency Fund... if you don't have these already, it's a sign you're either not charging enough or there is a money management problem... then I'd suggest you get 25% deposit at signing, 25% a week later after finalizing drawings/permits (should cover most of your materials, and some labor up to that point), 25% when you start work at the house (they usually see a lot of progress in demo/dumpster delivery, holes dug, etc. by the end of first day), 15%-20% after rough inspections are completed, and leave no more than 5-10% on the back-end which you collect on the last day (avoid billing)... always stay AHEAD of the draw (i.e. - you collect the money BEFORE you put it out...

As you develop Capital Reserves and Emergency Fund, you can choose to adjust the percentages accordingly as needed... but right now, the furthest distance you can put between you and a rob Peter to pay Paul cycle, the better your chances long-term... it's not generally that I see guys have a problem DOING the work, it's that they don't have the money needed for materials to actually DO the work...


BTW... if you're in California, ignore this whole post, as that's a FUBAR state when it comes to your exposure as a business...

Last edited by KAP; 07-26-2018 at 06:59 PM.
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Old 07-26-2018, 06:59 PM   #5
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Re: New Business Cash Flow


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Originally Posted by Tinstaafl View Post
I went ahead and moved the thread to Business, because the principles apply no matter what your schtick is
Ok. Sorry about that.

Obviously this has been talked about before, but most of what I found was either dealing with pretty big remodels, or smaller ($5-8k). Hoped maybe some deck guys would chime in.

I appreciate you putting it in the correct location
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Old 07-26-2018, 07:26 PM   #6
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Re: New Business Cash Flow


Thank you guys for the quick replies so far.

Do you guys ever seem to run into issues with asking for so much up front or before a good portion of the job is complete? I have already heard from a few people about how nervous they are writing checks with my current draws.

As far as capital, I have started raising my prices to help increase this quicker. I'm trying to find the happy medium between where I'm landing jobs, and being too high.
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Old 07-26-2018, 07:37 PM   #7
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Re: New Business Cash Flow


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Originally Posted by HammerSwing View Post
Thank you guys for the quick replies so far.

Do you guys ever seem to run into issues with asking for so much up front or before a good portion of the job is complete? I have already heard from a few people about how nervous they are writing checks with my current draws.

As far as capital, I have started raising my prices to help increase this quicker. I'm trying to find the happy medium between where I'm landing jobs, and being too high.
Are you a one-man band or have employees?

A lot of it has to do with how you explain draws to customers...


Californiadecks doesn't collect any money until it's done but if you want to follow that route, you have to be able to fund what you need to get there to be in that position...
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Old 07-26-2018, 07:45 PM   #8
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Re: New Business Cash Flow


If you are doing a 25,000 dollar deck and have 12,000 dollars in materials, including the margin, get that, plus a few days wages if you can start right away. If not, get the material money and then get the few days or a weeks worth, depending on job size of wages at start.

Never, especially starting out, get caught paying for the customers materials. Explain to them the draw schedule and most folks understand.

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Old 07-26-2018, 08:31 PM   #9
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Re: New Business Cash Flow


One thing I do and Iím sure itís wrong! But I have credit at the lumber yard, they bill me monthly. I pay them at the very end of the month and donít pay interest, and I pay them with my Capitol One Spark card.(2% cash back) then I donít pay off my credit card until the end of the cycle. So in reality Iím not paying for the product for a little over two months.
Yes I know eventually Iím paying every month for material but I donít pay interest and it seems like I have a buffer.....
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Old 07-26-2018, 08:51 PM   #10
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Re: New Business Cash Flow


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Originally Posted by Jay hole View Post
One thing I do and Iím sure itís wrong! But I have credit at the lumber yard, they bill me monthly. I pay them at the very end of the month and donít pay interest, and I pay them with my Capitol One Spark card.(2% cash back) then I donít pay off my credit card until the end of the cycle. So in reality Iím not paying for the product for a little over two months.
Yes I know eventually Iím paying every month for material but I donít pay interest and it seems like I have a buffer.....
That often goes very badly for guys, but I did the same thing starting out and it got me ahead. You have to be extremely careful doing this though.
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Old 07-26-2018, 09:04 PM   #11
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Re: New Business Cash Flow


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That often goes very badly for guys, but I did the same thing starting out and it got me ahead. You have to be extremely careful doing this though.


Yes you need to know how much money you really have vs how much money is in the bank!!!!!


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Old 07-26-2018, 09:16 PM   #12
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Re: New Business Cash Flow


I tried to get credit from my yard, but because it's a new business it didn't have business or bank references or business credit, they wouldn't approve anything. I had to start with cash to build a relationship. They wouldn't even run my personal credit for me to be the guarantor.
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Old 07-26-2018, 09:35 PM   #13
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Re: New Business Cash Flow


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I tried to get credit from my yard, but because it's a new business it didn't have business or bank references or business credit, they wouldn't approve anything. I had to start with cash to build a relationship. They wouldn't even run my personal credit for me to be the guarantor.
you should not be in business.

no credit & no cash, how will you survive if you miss a draw or materials get held up, pay labor, subs......

with you solely dependent on down payments etc you will soon be robbing peter to pay paul.
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Old 07-26-2018, 09:42 PM   #14
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Re: New Business Cash Flow


Make sure to take a meager personal salary when you start out.

I donít think it should fluctuate much, whether you sell $10,000 in a month or whether you sell $60,000 in a month.

IOW, Donít celebrate the big job by buying a brand new truck, lifting it, and putting a stereo in it. That is for 20-year-olds.


Youíre not 20 are you?
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Old 07-26-2018, 09:44 PM   #15
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Re: New Business Cash Flow


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you should not be in business.

no credit & no cash, how will you survive if you miss a draw or materials get held up, pay labor, subs......

with you solely dependent on down payments etc you will soon be robbing peter to pay paul.
Yep seen that one before. I asked a guy I used to work for when are we going to go finish Bonnies job? He says as soon as I get some money. I says well ask her for some money. He says I already got it all. So you have to finish one job in order to have the money to finish another? Yes.

I quit that Friday
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Old 07-26-2018, 10:28 PM   #16
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Re: New Business Cash Flow


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you should not be in business.

no credit & no cash, how will you survive if you miss a draw or materials get held up, pay labor, subs......

with you solely dependent on down payments etc you will soon be robbing peter to pay paul.
I truly appreciate the honesty, and will not get all defensive when I don't hear what I want, like I see quite a few do (on other sites, but I assume it happens here too). I will however defend myself a little. I have to assume that not everyone here had hundreds of thousands in the bank when starting.

Because not everyone just takes the full amount due at the end, like say a plumber when they fix your leaking fauce, I will assume most cannot finance every job. At least in the beginning. I am simply trying to fix an issue before it becomes a bigger problem.

Now that's a lot of assuming, and I could very well be wrong. I'm just trying to work with what I have, and the hand I've been dealt.

I didn't have a ton of money, but have enough to get through a slow payer, or someone who fights something. I just can't do it on multiple jobs right now.

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Old 07-26-2018, 10:34 PM   #17
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Re: New Business Cash Flow


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Originally Posted by Mordekyle View Post
Make sure to take a meager personal salary when you start out.

I donít think it should fluctuate much, whether you sell $10,000 in a month or whether you sell $60,000 in a month.

IOW, Donít celebrate the big job by buying a brand new truck, lifting it, and putting a stereo in it. That is for 20-year-olds.


Youíre not 20 are you?
No, not 20, and don't want a lifted truck

I haven't been taking much of a salary, and we have mainly been living off my wife's income. I've been trying to put everything into the business right now that I can afford.

Personally I don't have much debt, just the house. My truck is in great shape, but is an 04, so it's paid. My wife babies her car and we made sure to pay it off before starting the business.
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Old 07-26-2018, 10:50 PM   #18
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Re: New Business Cash Flow


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Originally Posted by HammerSwing View Post
I truly appreciate the honesty, and will not get all defensive when I don't hear what I want, like I see quite a few do (on other sites, but I assume it happens here too). I will however defend myself a little. I have to assume that not everyone here had hundreds of thousands in the bank when starting.

Because not everyone just takes the full amount due at the end, like say a plumber when they fix your leaking fauce, I will assume most cannot finance every job. At least in the beginning. I am simply trying to fix an issue before it becomes a bigger problem.

Now that's a lot of assuming, and I could very well be wrong. I'm just trying to work with what I have, and the hand I've been dealt.

I didn't have a ton of money, but have enough to get through a slow payer, or someone who fights something. I just can't do it on multiple jobs right now.
well you seem to have a good attitude and some slightly calloused skin...

how about trying to get a line of credit with your bank. then you could at least take care of business.

you do need to establish credit. personal & business.

you may find that prospective owners can & will check you out.

it could come in handy if you have to replace or buy equipment or make vehicle repairs.

credit is a tool, just like all the stuff on your truck.

just learn how to use it....
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Old 07-26-2018, 11:08 PM   #19
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Re: New Business Cash Flow


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well you seem to have a good attitude and some slightly calloused skin...

how about trying to get a line of credit with your bank. then you could at least take care of business.

you do need to establish credit. personal & business.

you may find that prospective owners can & will check you out.

it could come in handy if you have to replace or buy equipment or make vehicle repairs.

credit is a tool, just like all the stuff on your truck.

just learn how to use it....
I have been trying to stay as debt free as possible, but it's probably not a bad idea.

Would you recommend an SBA loan, or just talking with my bank about my options. Other than a vehicle loan and a mortgage, I've never tried to get a loan

Right now the only thing that may be getting the business credit is the Lowes LAR account I set up. It's more like a prepay thing though, so I'm not sure it helped with credit or not.
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Old 07-26-2018, 11:33 PM   #20
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Re: New Business Cash Flow


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I have been trying to stay as debt free as possible, but it's probably not a bad idea.

Would you recommend an SBA loan, or just talking with my bank about my options. Other than a vehicle loan and a mortgage, I've never tried to get a loan

Right now the only thing that may be getting the business credit is the Lowes LAR account I set up. It's more like a prepay thing though, so I'm not sure it helped with credit or not.
not an sba loan.

go to your bank and start with $2500 or 5K and go from there.

with a vehicle loan & a mortgage you should be able to get a small line of credit.

being debt free is great, but being in business don't think of the short term (monthly) debt. supplies, materials, subs, overhead etc all part of the cost of doing business.

lowes should give you a credit card, unless your credit score is in the toilet.

keep at it & good luck...

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